Like everyone else, we’ve been watching the Russian invasion of Ukraine with concern. On top of the immediate implications for people in Eastern Europe, worries are growing about the spike in global commodity prices and the ripple effects across emerging markets and low- and middle-income countries.
I reached out to a few experts to see what’s on their minds.
• “The main channel through which the rest of the emerging world will be impacted is through higher commodity prices, and oil and gas prices in particular,” writes Kimberley Sperrfechter, an economist at Capital Economics. “Higher commodity prices are likely to push up inflation across the emerging world. ... We estimate that higher food and energy inflation could add around 0.5-1.0% to [emerging market] headline inflation,” she tells me. That could lead to tighter monetary policy, particularly in Eastern Europe and Latin America.
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• World Bank President David Malpass is also warning of rising energy and food prices globally, with wheat and corn futures contracts soaring in recent days. “Inflation really hits the poor,” he said on CBS.
• The G-7 finance ministers met Tuesday, and the agenda included assistance to Ukraine. Afterward, German Finance Minister Christian Lindner told reporters the bloc would up its support to the country but did not offer specifics. Malpass had been pinning his hopes on the Western leaders. “They can decide a lot of how much aid goes into Ukraine,” Malpass said. He noted that the World Bank would be able to disburse funds within days. We asked IMF if it has more specific plans but were told it has nothing to report yet.
• Ian Goldin, a professor of globalization and development at Oxford University, says the invasion of Ukraine will worsen problems in many lower-income countries, including ones who have trade surpluses with Russia. “This is not a benign time to have another crisis, it’s a compounding time,” he says. He worries that inflation will rise, as will interest rates, making the debt crisis worse. “What has to happen is a recognition that there needs to be a massive increase in development assistance… The SDGs need to be put back on track,” he adds, calling for a plan for debt write-offs.
• Ratings agency Moody’s points out that a downturn in Russia would have indirect effects on countries such as Tajikistan and Kyrgyzstan, which rely heavily on remittances from their larger neighbor. Experts are also watching the global effect of the sanctions on the Russian banking system.
SDR shuffle
There have been a lot of out-of-the-box ideas recently for how to maximize the potential of IMF’s historic $650 billion Special Drawing Rights issuance last year. As I reported, African ministers and bankers were trying to find ways to support economic growth by channeling excess SDRs from high-income countries to vulnerable nations, especially through multilateral development banks.
And then IMF threw cold water on it all. Unprompted, IMF Managing Director Kristalina Georgieva said in prepared remarks at a mid-February summit between the African Union and EU: “There has been a lot of interest in whether we can channel SDRs through regional development banks. And the answer to this is, unfortunately, that we cannot.” That seemed to be the end of it.
Except it wasn’t. IMF has now added a footnote to Georgieva’s remark on its website, saying: “This statement is focused on national central banks in the EU. … The IMF is working with MDBs and RDBs on SDR channeling options which might be used by other SDR holders.” For context, the European Central Bank had previously nixed the idea.
As Mark Plant at the Center for Global Development tells me, this entire question will ultimately come down to politics. “If political leaders insisted that a way should be found to recycle SDRs through MDBs, it could be done,” Plant says. “But will it come?”
6 months after SDR allocation: Can the assets work for development?
Check in the mail
Three years after the Inter-American Development Bank and Haitian government reached a deal to compensate farmers in the country for the seizure of their land, they are still waiting for the payout. For those who lost their livelihoods, the delay is having serious impacts, including hunger, my colleague Teresa Welsh reports.
Community members are pushing to speed up compensation for land lost to an industrial park. “Most of the people are doing agricultural activities. The land is everything for them,” one farmer tells Teresa. Meanwhile, the bank in November approved an additional $65 million for the park’s expansion.
In Haiti: 3 years on, those displaced by IDB project await land compensation
Slices of the IDB pie
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Speaking of IDB, the bank’s allocation for projects in 2021 declined by $4.2 billion, or 19.2%, from the previous year. Three countries — Brazil, Mexico, and Ecuador — received 42% of the total funding. My colleague Miguel Antonio Tamonan digs into the numbers and finds that while both Brazil and Mexico saw their funding levels shrink, and Ecuador jumped 13 places to make it into the top three recipients. Among the reasons for the overall decline is a decrease in funding for projects related to COVID-19.
Devex Pro: Breakdown of IDB’s $17.8B allocation in 2021
+ Devex Pro subscribers can also learn more about ‘IDB Invest 2.0’: The strategy that centers on mobilization of private capital. Not yet a Pro subscriber? Sign up and start your 15-day free trial.
Values chain
The European Commission released its long-awaited plan for dealing with environmental issues and human rights abuses along private sector supply chains. The commission says it wants to “project European values on the value chains.” Critics were quick to point out the raft of carve-outs, including for small- and medium-sized companies.
European Commission: Unveiling of corporate due diligence plans
What we’re reading
In a push for more revenue, Boston Consulting Group wants to hire climate activists. [Financial Times]
AfDB commits up to $379.6 million for “Desert to Power” financing in the Sahel region. [AfDB]
A bid to purchase AGL, the largest Australian power company, as part of a secret plan in Australia to fund a massive decarbonization project, has been rejected by AGL’s board [Sydney Morning Herald]
BP, Norway’s sovereign wealth fund, and many others have said they’ll divest from Russia. But it’s easier said than done. [Axios]
About the author
Shabtai Gold
Shabtai Gold is a Senior Reporter based in Washington. He covers multilateral development banks, with a focus on the World Bank, along with trends in development finance. Prior to Devex, he worked for the German Press Agency, dpa, for more than a decade, with stints in Africa, Europe, and the Middle East, before relocating to Washington to cover politics and business.
